What's the next investment after real estate?

BlackPiano wrote: ↑ Real estate has been very good to me. Over the last 10ish year run-up I just kept refinancing and buying more properties, which allowed me to put together a nice little portfolio. Now i've maxed out my mortgage qualification (and am in millions in debt haha).

The returns have been ridiculous, about 30%+ per year. I don't think there's a better investment class out there for regular joes than real estate.

I've looked into buying stocks on margin, but I only see the possibility of 15%ish returns if you're giving yourself some buffer room to avoid a margin call with even a small downturn. Options trading seems to be hot right now, but it's hard to get an accurate historical return for options trading because it completely depends on when you buy/sell and the premiums you're getting.

Buying existing cash cow businesses sounds interesting. The Canada Small Business Financing Program seems to offer awesome terms, only 20% down, allowing you to heavily lever up just like in real estate. Buy a stable existing business with management intact and use the cash flows to pay down your loan and at the end of your loan you own a business free and clear throwing off tons of cash.

Commercial real estate is an unknown to me. It seems like a no-brainer to pivot into multi-family commercial properties after maxing out on residential properties because it's the same industry, but now you can get commercial mortgage loans without having to qualify with your income. But I don't know any residential real estate investors who have switched into commercial real estate. They must know something I don't, I must be missing something. Is commercial real estate dominated by institutional investors who drive down the yield?

I have seen a bunch of real estate investors who hit the mortgage qualification wall pivot to flipping residential properties and the super successful ones even becoming small-time developers. I hate the risk of flipping/development, but it wouldn't be too hard to pivot into this and at least I have some experience in this area.

With how expensive real estate is now, I'm sure there are lots of us out there who have also hit the mortgage qualification wall as well. How have you guys pivoted? What other investments are real estate investors here investing in?

BlackPiano wrote: ↑ Real estate has been very good to me. Over the last 10ish year run-up I just kept refinancing and buying more properties, which allowed me to put together a nice little portfolio. Now i've maxed out my mortgage qualification (and am in millions in debt haha).

The returns have been ridiculous, about 30%+ per year. I don't think there's a better investment class out there for regular joes than real estate.

I've looked into buying stocks on margin, but I only see the possibility of 15%ish returns if you're giving yourself some buffer room to avoid a margin call with even a small downturn. Options trading seems to be hot right now, but it's hard to get an accurate historical return for options trading because it completely depends on when you buy/sell and the premiums you're getting.

Buying existing cash cow businesses sounds interesting. The Canada Small Business Financing Program seems to offer awesome terms, only 20% down, allowing you to heavily lever up just like in real estate. Buy a stable existing business with management intact and use the cash flows to pay down your loan and at the end of your loan you own a business free and clear throwing off tons of cash.

Commercial real estate is an unknown to me. It seems like a no-brainer to pivot into multi-family commercial properties after maxing out on residential properties because it's the same industry, but now you can get commercial mortgage loans without having to qualify with your income. But I don't know any residential real estate investors who have switched into commercial real estate. They must know something I don't, I must be missing something. Is commercial real estate dominated by institutional investors who drive down the yield?

I have seen a bunch of real estate investors who hit the mortgage qualification wall pivot to flipping residential properties and the super successful ones even becoming small-time developers. I hate the risk of flipping/development, but it wouldn't be too hard to pivot into this and at least I have some experience in this area.

With how expensive real estate is now, I'm sure there are lots of us out there who have also hit the mortgage qualification wall as well. How have you guys pivoted? What other investments are real estate investors here investing in?

wiab89 wrote: ↑ Would like to know more about this small business financing program. What kind of companies are you targeting? Cafes, chain restaurants, barbershops…?

I’m saving up for 4th property at the moment but after that I’ve thought about pivoting and expanding outside of residential RE.

JD_Inv wrote: ↑ How about private lending or arms length mortgages.

dc200 wrote: ↑ Why don't you reduce your mortgage debt?

RealtorInvestor wrote: ↑ There are many investors in my network that have switched over from duplex/triplex to multi-family. It requires a bit more expertise and a bad deal can bite you a bit harder, but the potential to make profits even in a flat market is huge if you find the right deal. Right now it's a very competitive space, the cap rates are crap and if you find something with below market rents financing becomes an issue. It is a segment you should look into though.

RichmondCA wrote: ↑ Congrats on your success to date!

A lot of the alternatives you are describing here are effectively you buying yourself a full time job FYI, majority will require your active management, it’s unclear if you are ok with that or if they need to be passive.

I will give you my thoughts on all as I've done majority of these (started and sold 2 businesses, have done commercial and residential development, and have extensively looked at multifamily/self storage/etc).

I will rank these in terms of least attractive to most attractive, starting with least:

Development: by far the least profitable of them all with the highest amount of risk. Every single mistake will put your margin at risk, and there are a lot of mistakes that will happen. Post covid there is absolutely no way I’d consider any development unless it was something that’s already been kicked off and approved. Delays in permitting, availability of trades, NIMBY will be your biggest challenges. I think residential ‘development’ – like building the odd house here or there or an East York topper still has some OK margin, but I’d rather make that 100k-200k in less time consuming and risky ways. It really comes down to how well you buy.

In terms of commercial development, you are not going to be able to pull this off on your own and you will now buy yourself a job and you will have 5 bosses to report to indirectly (bank/private equity/municipal council/GC/etc.

There is something ‘sexy’ about development, it’s also fulfilling, but if you want to make money this is simply not the right place. If you want to do it for the sake of doing it, the life experience is invaluable.

Multi-Family: You will have to look at tertiary and secondary markets in Ontario. You will not find yield in the GTA. There are two ways to go about this. Option 1 - you can buy your own doors and try to manage yourself at a 4.5%-5.5% cap rate which still not that great, but luckily there are some very lenient financing tools that will do 40 year amorts (CMHC), where you can still swing it. Option 2 – you can invest in a private equity syndicate that buys 100’s of doors in secondary markets, have the economies of scale and give you a passive entry into it. Illiquid for a while and you are not in control, but I think it’s good to have exposure.

SMB: Buying a business is probably the best avenue over the next 10-15 years. Boomers retiring, their kids don’t want to run the businesses, there is a lot of off market opportunity, this space is by far the most exciting for me. Again, you are running the risk of buying yourself a job, but on the flipside a lot of these businesses are run so inefficiently, wrap them up in technology, install a good management team, and you can have passive income for 5-10 hours a week. The Canada Small Business Financing Program is ok, but the real opportunity here is in Vendor Take Back loans, which are orders of magnitude less risky to you as the buyer.

vprime77 wrote: ↑ I have experience performing business valuations and also real estate investments. Given that the "risk free" return is practically zero (i.e. the medium/long term gov't of Canada bond yield) explains why real estate and stocks are trading at elevated multiples. Finding a small business that is either undervalued or can be turned around to increase margins would probably get you a better return (since you are already paying top dollar for real estate and public equities). There are many inefficiencies within small private companies compared to publicly traded stocks and real estate. This is where you can unlock value....but it's hard to find. It would probably be best to find something in an industry you're familiar with. There are also many tax advantages if taxed at the small business rate. However, to be perfectly honest if you want less headache just buy bank stocks...you should get an average 10-12%/year....plus its liquid.....and dividends are taxed at a lower rate.

Jruuu wrote: ↑ Why continue investing? What are your goals? Why not cash out now and enjoy a stable dividend stream at this point?

I think you need to ask yourself, how much is enough? And go from there. By the sounds of it, you should be focusing on asset preservation vs growth at this point.

BlackPiano wrote: ↑ Thanks, that confirms what I've heard about development, which is that it's sexy, but it's very risky and not the best risk-adjusted way to make money.

Good idea about joining a private equity syndicate to dip my toe in the water. I'd love to have a chance to crack open their books and see what they're doing before going out on my own.

I'm very excited about the buying-a-business path. Not too many small business gurus out there, unlike the hundreds of YouTube real estate gurus haha. What do you think is the best way to learn more. Talk to an agent that buys/sells businesses?

BlackPiano wrote: ↑ And get a sub 3% return?

BlackPiano wrote: ↑ I’m still pretty young and not ready to go into retirement and live off my passive income just yet.

I don’t have a number.

RichmondCA wrote: ↑ With my limited although recent and very colourful experience selling a business that went through private, online, MLS, etc. I found private/word of mouth was the best way. Everything else yielded unqualified buyers, tire kickers, competitors, or 'business brokers' who try to swindle you. There is no silver bullet that I know of when it comes to sub 5M market cap business, more so for less tha 1M cap. This is 'no man's' land of businesses where they aren't big enough for a broker to take on the headache and the valuations are super subjective and in many cases tied directly to the owner/operator. Without owner operator, that 1M cap is now $50k in used shitty inventory and a below market lease.

That said, I had a few people PM me. To keep it efficient, you need to narrow down on the type of business you want to buy (within reason) and then focus on finding the right contacts that way. This could be through insurance brokers that specialize in that business, professional associations, etc. You have to get creative, but word of mouth as unglamorous as it sounds is where the value is. Everyone can search the internet for the same tired and recycled information, by the time it's publicly available it's probably too late or it's just not a good offering. Most SMB's never make it for a public sale for confidentiality reasons, which is why word of mouth is how it goes down most of the time.

All of that said, I think this is the best way for anyone looking to go out on their own. It's ditch digging work at first, but beats the alternative.

The real fun is structuring the deal, that's when the fireworks start Then the hard work right after.

dc200 wrote: ↑ Why don't you reduce your mortgage debt?